VA home loans have several advantages over conventional and FHA mortgage loans that Veterans, active duty personnel, Reservist/National Guard members and some surviving spouses should consider when investigating their real estate financing options.
VA home loans offer 100% financing for home purchases
VA home loans offer the borrower the opportunity to finance up to 100% of the purchase price of a home as long as the VA appraisal, known as notice of value, is equal to or greater than the purchase price. If for some reason the notice of value is less than the purchase price, then VA home loans allow the borrower to finance 100% of that notice of value. FHA mortgage loans also require 3.5% of the purchase price for a down payment. Conforming conventional mortgage loans require typically require a minimum 3-5% of the purchase price for down payment. VA home loans have the advantage over FHA and conventional loans because VA home loans typically do not require a down payment.
VA home loans offer 100% cash-out financing for home refinances
The cash out can be used to pay off any existing liens, consolidate debt, create cash in hand, or for any purpose deemed acceptable by the lender. All FHA loans limit the loan value to 85% of the value of the home for cash out refinances. Conventional loans typically limit the loan to value to 80% of the value of the home and with strict underwriting guidelines will allow cash out to 85% loan to value with mortgage insurance. VA home loans allow borrowers to access more equity in their home than either conventional or FHA mortgage loans.
VA home loans do not require annual or monthly mortgage insurance
No annual or monthly mortgage insurance is required on any VA home loan. The VA guarantees a percentage of the loan to investors and lenders. This guaranty allows the loans to be made without mortgage insurance. All FHA mortgage loans with terms greater than 180 months require annual mortgage insurance. 15 year FHA mortgage loans with a loan to value over 90% require annual mortgage insurance. Conventional loans with loan to value greater than 80% require monthly mortgage insurance.
VA home loans offer an interest rate reduction refinance (IRRRL)
Borrowers can refinance an existing VA home loan for the purpose of lowering the interest rate without an appraisal, credit information or underwriting. However, some lenders may require an appraisal and credit. FHA guidelines allow a streamline refinance to refinance existing FHA loans however, a credit report will be required. An appraisal will be required on FHA streamlines if the new loan is greater than the original balance of the existing loan. Conforming conventional mortgage loans with the purpose rate and term refinancing require underwriting, often an appraisal, credit report, and income documentation.
VA home loans allow borrowers to finance energy efficiency home improvements
In addition to the maximum financing, VA home loans allow borrowers to finance energy efficiency improvements. Borrowers can finance 100% of the value of their home plus the cost of energy efficiency improvements. Examples of acceptable energy efficiency improvements are solar or conventional heating/cooling systems, water heaters, insulation, weather stripping/caulking and storm windows and doors.
FHA loans allow for the financing of energy efficient improvements but at a lower loan to value. Conventional conforming loans do not have this feature.
VA home loans offer many borrower advantages. No money down purchase programs, 100% cash out refinancing, no mortgage insurance, simple rate reduction loans, and the ability to finance energy efficiency improvements are all advantages of a VA home loan.
Sources:
Lenders Handbook – VA Pamphlet 26-7
Welcome to the Loan Guaranty Home Loan Program
HUD 4155.1, Mortgage Credit Analysis for Mortgage Insurance
